The Ponzi scheme
Among progressive economists, and an increasing number of politicians, federal deficits and debt are now looked upon as nothing to worry about. Governent should spend every dine it can get via taxation or debt to do whatever the political class desires. The red ink will work itself out (if it matters at all).
It goes under the name of "Modern Monetary Theory," and as Arnold Kling writes, it's little more than a Ponzi scheme:
Government taxes ultimately take away real stuff from the private sector. When you pay taxes, that leaves you with fewer resources to pay for real stuff.
Just like you or me or Uber, the government can get more real stuff than it collects by issuing promises. It might make promises that are paid back with interest, in which case they are called bonds. Or it might make promises that pay no interest, in which case they are called money. (An esoteric point, of interest only to economists, is that bank reserves held at the Fed, which we consider to be money, now pay interest.)
Some very important promises that the government makes are embedded in entitlement programs. You may not have a written, contractual promise from the government to provide you with Social Security and Medicare, but when you retire you will be pretty cheesed off if you don’t get those benefits. And you will have one of the most powerful lobbies in the whole country, the American Association of Retired Persons, standing read to punish any politician who dares to try to cut your benefits.
If the United States government is capable of keeping all of its promises, including promises to repay its debt and promises to continue entitlement programs, then it is engaged in ordinary finance. If it is not capable of meeting its promises, then government finance has degenerated into a Ponzi scheme. Opinions on that currently differ. Most of us are behaving as if we expect the government to keep meeting its promises, even though some analyses suggest otherwise.
The best analysis of the financial outlook for the U.S. government comes from the Congressional Budget Office. And some experts believe that the CBO reports show that the government will not keep all of its promises.
If these experts are correctly interpreting the CBO projections, then the U.S. government is running a Ponzi scheme. As with any Ponzi scheme, the collapse, when it comes, will be sudden and unexpected.
The collapse of the Ponzi scheme will entail a loss of confidence in the financial instruments issued by the government. This would include a loss of confidence in the future value of money. Just as in the asteroid scenario, people would be trying to get rid of money as fast as they can. Countries that have experienced hyperinflation are illustrations of this. Hyperinflation results in a collapse in ordinary economic activity, and people can be forced to revert to barter.
The idea is a bigger fool waiting to be fleeced is just around the corner. So long as they exist, the scheme endures. It's when there aren't any more suckers around any more corners that collapse -- sudden, and terrible, happens.